Oil prices and mortgages send shares tumbling to lowest point this year

Friday 11 July 2008 12:55 BST

Inevestors were reeling yesterday after the FTSE 100 index of leading share entered 'bear market' territory.

This is the point at which the value of the blue-chip index has plunged more then 20 per cent from its recent peak.

More than £30billion was wiped off the FTSE 100 yesterday, which closed at 5,261.6, its lowest level since October 2005.

Concerns over the US economy and a new surge in oil prices pushed the FTSE 100 Index as low as 5302.8 today

Concerns over the US economy and a new surge in oil prices pushed the FTSE 100 Index as low as 5302.8 today

Last year, the FTSE 100 reached close to 6,730 but has fallen since then, dropping another 2.69 per cent yesterday. The index is now 21.8 per cent below that peak, meaning every £1 invested then is worth just under 80p. Stock markets worldwide also plunged in response to concerns over the future of American mortgage companies Fannie Mae and Freddie Mac.

Shares in the two firms have been falling all week. There are fears that the pair are technically insolvent and yesterday reports emerged in the U.S. that the American government is considering bailing them out. They are the heart of the U.S. home loan market, providing liquidity to lenders by guaranteeing almost half of the U.S. market.

A surge in the oil price to a record of more than $147 a barrel also unnerved investors who fear the impact of record petrol prices on company profits.

Hugo Shaw, of financial advisers Bestinvest, urged investors not to panic. He said: 'Over the longer-term, stock market investments outperform returns from bank and building society deposits and most other asset classes.'

He added that there was no way of knowing how long the downward trend would continue, but pointed out it cannot last forever.

For some however, such as those approaching retirement and pensioners who rely on their investments, the effects of the downturn are immediate. They do not have the time to wait for stock markets to recover.